Irish Water will be allowed raise prices every year

And the company can keep any profits for six years before passing cuts on to consumers

The cost of water will rise

MICHAEL BRENNAN – 01 DECEMBER 2013

WATER charges are set to go up every year for families because Irish Water will be allowed to increase the rate, the Sunday Independent has learned.

And even households who stop wasting water and reduce their consumption could still end up with higher bills.

Under new plans being drawn up, Irish Water will be able to seek an annual hike in water charges if its earnings are hit by a drop in the usage of water by households.

Irish Water can also seek increases if the cost of upgrading the water infrastructure turns out to be greater than expected.

It is the first time that consumers have been made aware of the prospect of regular increases in water charges – rather than getting a guaranteed rate for several years.

A consultation paper on the roll-out of water charges next October by the new water regulator also says Irish Water will:

* Be allowed to keep more profits if they fix leaks faster and install water meters faster.

* Hold on to the money for six years before passing on any cost savings to householders.

* Take over water infrastructure worth €11bn.

The Commission for Energy Regulation (CER), which already decides on price increases for electricity and gas, confirmed that under its plans, Irish Water will be given the flexibility to raise water charges annually if revenue from households is less than expected.

“If demand (for water) changes, the tariff will have to change to meet that revenue requirement,” its spokesman Andrew Ebrill said.

But even if Irish Water makes more money from water charges than expected, CER is proposing to allow it to hold on to the profits for six years before it has to reduce water charges. There will be at least two key conditions:

* Irish Water will have to exceed targets on reducing leakage from water pipes. Around 41pc of water supplies is lost due to leakage – one of the highest rates in Europe.

* Irish Water will have to install water meters faster than the current rate of one million over the next three years.

CER is going to tell householders next March how much they will have to pay in water charges. The Government will also have to decide by this time how much of a free water allowance will be given to every household.

Water charges will begin next October with the first bills due to arrive in January 2015. Although no decision has been made, it is estimated that households could have to pay around €300 per year in water charges.

CER will be carrying out a consultation process specifically on the rate of water charges in the coming months.

Mr Ebrill said that calculating how long Irish Water could hold on to any extra revenue from customers was one of the trade-offs that had to be decided upon by the CER.

“You could do it every year but then arguably the company doesn’t have incentives to make big efficiencies because they lose it the next year. Arguably, they can’t drive efficiencies overnight. But if you leave it too long, you’re allowing them to keep the money for too long,” he said.

However, Mr Ebrill said the CER would be setting stringent revenue control targets for Irish Water in the first place so that it would not be able to “cream it” over six years by taking extra money easily from householders.

The legislation needed to implement water charges is due to be passed in the Dail before the Christmas break.

CER’s basic principle is to allow Irish Water to charge enough to pay for the operating cost of providing water – as well as the cost of upgrading water infrastructure such as pipes, reservoirs and water treatment plants. But its consultation paper on the basic framework for water charges also outlines another factor that could lead to higher prices for households.

The higher the value put on the water infrastructure being transferred to Irish Water, the higher the water charges will be for consumers. This is because the bigger Irish Water’s asset base is, the bigger amount of the revenue required from customers to pay for it.

The estimated value is €11bn but there are lots of different methods of valuing it because of the difference between new and old water assets. There are modern-era water pipes and water treatment plants that have been paid off already and should not cost Irish Water much.

But there are new water treatment plants that will require repayments for the next 30 years. It will be up to the Government to make the final decision on how to value the assets.

Water meters are being installed in just over one million homes over the next three years.

Up to 300,000 homeowners – primarily people living in apartments that cannot be metered – will pay their bills based on average consumption, called an “assessed charge”.